Deutsche Bank National Trust Company, as certificate trustee on behalf of Bosco Credit II Trust Series 2010-1, Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-1315

Deutsche Bank National Trust Company,
as certificate trustee on behalf of Bosco Credit II Trust Series 2010-1,
Respondent,

vs.

Diann A. Johnson,
Appellant.

Filed April 3, 2017
Affirmed in part, reversed in part, and remanded
Smith, Tracy M., Judge

Dakota County District Court
File No. 19HA-CV-16-371

Russell S. Ponessa, M. Annie Santos, Hi nshaw & Culbertson LLP, Minneapolis,
Minnesota (for respondent)

John G. Westrick, Westrick & McDowall-Nix, PLLP, St. Paul, Minnesota (for appellant)

Considered and decided by Hooten, Pr esiding Judge; Reilly , Judge; and Smith,
Tracy M., Judge.
U N P U B L I S H E D O P I N I O N
SMITH, TRACY M., Judge
Respondent Deutsche Bank National Trust Company (Deutsche Bank) sued
appellant Diann Johnson for breach of contra ct after Johnson defaulted on a note secured
by a second mortgage. Johnson asserted two affirmative defenses: (1) the contract is void

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due to fraud in the factum b ecause Johnson was not aware of the nature of the note she
signed; and (2) the interest rate on the note is usurious. Johnson also argued that the entire
amount owing on the note was not recoverable because the bank never accelerated the note.
The district court granted summary judgment in favor of Deutsche Bank and awarded
damages based on the entire amount owing on the note, plus interest.
On appeal, Johnson argues that (1) genuine issues of material fact exist with respect
to her fraud-in-the-factum defense, (2) genuine issues of material fact exist with respect to
her usury defense, and (3) the district court misapplied the law in concluding that the note
was accelerated. We conclude that there are no genuine issues of material fact with respect
to Johnson’s fraud-in-the-factum defense and that the district court properly rejected that
defense on summary judgment. We also conclude that the di strict court properly applied
the law in concluding that the note was accelerated. We conclude, however, that a genuine
issue of material fact precl udes summary judgment on Jo hnson’s usury defense. We
therefore affirm in part, reverse in part, and remand.
FACTS
Johnson claims that in Marc h 2006, at the insistence of her late husband, she agreed
to cosign or guarantee a note secured by a first mortgage for her mother-in-law’s purchase
of a house. According to Johnson, her husband presented her with several signature pages
but did not provide her with the terms of th e agreements. On Ma rch 15, 2006, Johnson
signed a note secured by a second mortgage, pursuant to which Great Northern Financial
Group, Inc. (Great Northern) agreed to loan Johnson $44,500 at a year ly interest rate of

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13.125%.1 Johnson claims that she believed that she was cosigning only the first-mortgage
note and did not realize that she was the primary obligor on both a first-mortgage note and
a second-mortgage note. Johnson’s mother-i n-law never signed the note secured by the
second mortgage, nor did Johnson’s husband. Shortly after Johnson signed the note, Great
Northern assigned its interest in the second-mortgage note to Deutsche Bank.
In 2008, the first mortga ge was foreclosed on, and the house was sold.
The last payment that was made on the second-mortgage note occurred on April 1,
2008. As of May 1, 2008, the principal balance remaining was $44,230.22. Johnson asserts
that she never made any payments on this se cond-mortgage note and did not learn of its
existence until 2015. Deutsche Bank sent Jo hnson a notice of default on July 24, 2015,
demanding total payment by September 1, 201 5 of $78,635.23—representing the entire
principal balance of $43,991.74 owing as of September 1, 2009 and $34,643.49 in interest
since that date. Johnson refused to pay. Shortly thereafter, Deutsche Bank brought a
breach-of-contract claim against Johnson, seeking judgment in the amount of $78,635.23.
Johnson raised the affirmative defenses of fraud in the factum and usury. Johnson further
alleged that Deutsche Bank could not recover the entire amount of the loan because the
bank had not properly accelerated the note.
Deutsche Bank moved for summary judgment. The district court granted Deutsche
Bank’s motion. The district court concluded that there were no genuine disputes of

1 A third mortgage was later placed on the property in May 2008, which Johnson alleges is
a forgery. This third mortgage is not at issue in this case and has no bearing on our decision.

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material fact. It further conc luded that Deutsche Bank estab lished its claim of breach of
contract. With respect to Johnson’s affirmative defenses, the district court concluded that
Johnson had a reasonable opportunity to learn the nature of the note before signing and
therefore could not establish her fraud-in-the-fa ctum defense, and that Johnson failed to
present material facts supporting her usury defense because Johnson provided no evidence
that Great Northern was not auth orized to charge the note’s rate of interest under Minn.
Stat. § 47.20, subd. 4a (2016). Finally, the di strict court concluded that Deutsche Bank
properly accelerated the note by seeking judgment in full in its complaint and in its
summary-judgment motion.
Johnson appeals.
D E C I S I O N
On appeal from a grant of summary judgment, we review de novo (1) whether the
district court properly applied the law and (2) whether there are any genuine issues of
material fact that prec lude summary judgment. Riverview Muir Doran, L.L.C. v. JADT
Dev. Grp., L.L.C., 790 N.W.2d 167, 170 (Mi nn. 2010). “A material fact is one of such a
nature as will affect the result or outcome of the case depending on its resolution.” Zappa
v. Fahey , 310 Minn. 555, 556, 2 45 N.W.2d 258, 259-60 (1976 ). No genuine issue of
material fact exists where “the record taken as a whole could not lead a rational trier of fact
to find for the nonmoving party.” DLH, Inc. v. Russ , 566 N.W.2d 60, 69 (Minn. 1997)
(quotation omitted). On a summary judgment motion, a court may not weigh evidence or
make factual determinations; thus, if ther e is any evidence to support the nonmoving
party’s position, summary judgment must be denied. State ex rel. Hatch v. Allina Health

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Sys., 679 N.W.2d 400, 406 (Minn. App. 2004). In reviewin g the record, we view the
evidence in the light most favorable to th e party against whom summary judgment was
entered. STAR Ctrs., Inc. v. Faegre & Benson, L.L.P, 644 N.W.2d 72, 76-77 (Minn. 2002).
“[W]hen the nonmoving party bears the burden of proof on an element essential to
the nonmoving party’s case, the nonmoving party must make a showing sufficient to
establish that essential element.” DLH, Inc., 566 N.W.2d at 71. The nonmoving party thus
bears the burden of identifying specific facts supporting her affirmative defense. Kessel v.
Kessel, 370 N.W.2d 889, 895 (Minn. App. 1985). But summary judgment is inappropriate
if the nonmoving party “presents sufficient evidence to permit reasonable persons to draw
different conclusions.” Schroeder v. St. Louis County, 708 N.W.2d 497, 507 (Minn. 2006)
(emphasis omitted).
I. Johnson has not met her burden of establishing a genuine issue of material fact
with respect to her fraud-in-the-factum defense.

Johnson argues that the district court erre d in entering summary judgment on her
fraud-in-the-factum defense because a genuine issue of material fact exists with respect to
whether she had an opportunity to learn the true nature of the note.
Unlike fraud in the inducemen t, fraud in the factum concerns misrepresentations
about the true nature of a negotiable instrument. Under Minnesota’s Uniform Commercial
Code, an obligor sued on a note may raise the affirmative defense of fraud in the factum if
fraud “induced the obligor to sign the instru ment with neither knowledge nor reasonable
opportunity to learn of its character or its essential terms.” Minn. Stat. § 336.3-
305(a)(1)(iii) (2016). Consistent with the language of Minn. Stat . § 336.3-305(a)(1)(iii),

6
the party raising the affirmative defense of fra ud in the factum must establish that (1) the
obligor had no knowledge of the true nature of the instrument and (2) the obligor was not
afforded a reasonable opport unity to learn the true nature of the instrument. See U.C.C.
§ 3-305 cmt. 1 (Am. Law Inst. & Unif. Law Comm’n 2002); see also Valspar Refinish,
Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 366 (Minn. 2009) (citing the Uniform Commercial
Code commentary as persuasive authority); Deutsche Bank Trust Co. Americas v. Samora,
321 P.3d 590, 598 (Colo. App. 2013) (interpreting fraud in the factum under the Uniform
Commercial Code). Fraud in the factum extends to “an instrument signed with knowledge
that it is a negotiable instrume nt, but without knowledge of its essential terms.” U.C.C.
§ 3-305 cmt. 1.
In assessing whether a party had a reasonable opportunity to learn the true nature of
the instrument, the court should examine “all relevant factors” including
the intelligence, education, business experience, and ability to
read or understand English of th e signer. Also relevant is the
nature of the representations that were made, whether the
signer had good reason to rely on the representations or to have
confidence in the person making them, the presence or absence
of any third person who might read or explain the instrument
to the signer, or any possib ility of obtaining independent
information, and the apparent necessity, or lack of it, for acting
without delay.

Id. The obligor must act with “ordinary care,” Merchants’ State Bank of Elizabeth v.
Umlauf, 160 Minn. 255, 260, 199 N.W. 819, 820 (1924), and generally fails to do so if she
“signed the note voluntarily, w ithout informing [her]self of its contents, relying wholly
upon the statements of the party opposed to h[er] in the contract as to its nature and
contents.” Ward v. Johnson, 51 Minn. 480, 482, 53 N.W. 766, 766 (1892).

7
Johnson alleges that her husband made two misrepresentations: (1) that she was
only signing a first-mortgage note and (2) that she was a cosigner, not the primary obligor,
on the second-mortgage note. But even if her husband made those representations and,
based upon them, Johnson had no knowledge of the true nature of the note, Johnson still
has failed to produce sufficien t evidence to permit a dete rmination that she was not
afforded a reasonable opportunity to learn the true nature of the note. The signature page
of the note explicitly states that the note relates to a second mortgage. Beneath Johnson’s
signature, Johnson is identifie d as the “Borrower.” The si gnature page also states,
immediately above Johnson’s signature, that “[ i]f more than one person signs this Note,
each of us is fully and personally obligated to pay the full amount owed . . . . [A]ny one of
us may be required to pay all of the amounts owed under th is Note.” Had Johnson read
only the signature page that she signed, she would have realized that (1) she is fully liable
for any debts owed under the note and (2) the note relates to a second mortgage.
Nevertheless, Johnson contends that she has produced sufficient evidence to create
a genuine issue of material fact because her reliance on her husband raises questions about
whether her ignorance is excusable. Relevant to the question of whether a party had an
opportunity to learn about the true nature of the instrument is “whether the signer had good
reason to rely on the representations or to have confidence in the person making them.”
U.C.C. § 3-305 cmt. 1. Johnson cites Sorenson v. Bridge Capital Corp., in which a New
York appellate court stated that “[t]he general rule is that in the absence of a confidential
relationship, a party who signs a document without any valid excuse for having failed to
read it is conclusively bound by its terms.” 861 N.Y.S.2d 280, 282 (N.Y. App. Div. 2008)

8
(emphasis added) ( quotation omitted). Sorenson itself did not find such a confidential
relationship and, in fact, upheld the lower court’s summary judgment because the “plaintiff
had a fair opportunity to read the final agreements.” In cases where negotiable instruments
were voided as a result of a misrepresentation by a party in a confidential relationship, the
confidential relationship was betw een the obligor and the obligee. See, e.g., Cochran v.
Murrah, 219 S.E.2d 421, 423-24 (Ga. 1975) (holding that employee may be able, on theory
of confidential relationship, to cancel release of claims with employer who misrepresented
nature of release); Rumfield v. Rumfield , 324 S.W.2d 304, 306 (Tex. Civ. App. 1959)
(finding fraud in the factum where nephew represented to elderly uncle that document was
a will rather than a deed); Sutton v. McMillan , 97 S.E.2d 139, 143 (Ga. 1957) (affirming
district court’s cancellation of three de eds where brother obtained deeds through
misrepresentations to sister).
Unlike in those cases, the confidential rela tionship here is not between the obligor
(Johnson) and the obligee (Great Northern and its successor in interest, Deutsche Bank),
but rather between Johnson and her husband. Johnson has presented no caselaw or other
authority supporting the proposition that an obligor may be excused from exercising due
care in signing a note because of a confidential relationship with someone who is not the
obligor or the successor in interest to the obligor. Johnson has failed to show the existence
of a genuine issue of material fact with respect to her fraud-in-the-factum defense, and the
district court properly rejected it on summary judgment.

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II. The district court erred in concludi ng that Johnson had not presented a
genuine issue of material fact with respect to her usury defense.

Johnson argues that the district court erred in concluding that she failed to identify
material facts supporting her claim that the note was usurious. The district court concluded
that Johnson did not rebut the prima facie s howing that Great Northe rn was permitted to
charge a 13.125% interest rate under Minn. Stat. § 47.20, subd. 4a(a).
Usury is an affirmative defense. Dege v. Produce Exch. Bank of St. Paul, 212 Minn.
44, 47, 2 N.W.2d 423, 425 (Minn. 1942). In response to a su mmary-judgment motion,
Johnson has the burden to point to “specific facts suppor ting [her] affirmative defense.”
Kessel, 370 N.W.2d at 895. Whether a transaction is usurious is a question of fact. Kantack
v. Kreuer, 280 Minn. 232, 240, 158 N.W.2d 842, 848 (1968). Four elements must be
proven to establish a violation of usury laws: (1) “a loan of money or forbearance of debt,”
(2) “an agreement between the parties that the principal shall be repayable absolutely,”
(3) “the exaction of a greater amount of interest or profit than is allowed by law,” (4) “the
presence of an intention to evade the law at the incep tion of the transaction.” Citizen’s
Nat’l Bank of Willmar v. Taylor, 368 N.W.2d 913, 918 (Minn. 1985). Intent is presumed
if a lender intentionally charges an interest rate that is in fact greater than permitted under
the usury laws. Id. at 919.
The parties dispute whether Johnson has produced sufficient evidence to establish a
prima facie showing of “the exaction of a greater amount of interest or profit than is allowed
by law.” Id. at 918. The general usury statute is Minn. Stat. § 334.01, subd. 1 (2016),
which provides that interest on a loan in ex cess of eight percent per year is usurious.

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Neither party disputes that the note has an an nual interest rate of 13.125% and would be
usurious under Minn. Stat. § 334.01, absent an exception.
While Minn. Stat. § 334.01 is the general interest statute for loans, there “are several
statutory exceptions to this interest ceiling.” Rathbun v. W. T. Grant Co., 300 Minn. 223,
231, 219 N.W.2d 641, 647 (1974). Deutsche Bank suggests that the transaction is subject
to an exception, but fails to specify which statutory excepti on permits the 13.125% rate.
The district court relied on Minn. Stat. § 47. 20, subd. 4a(a), which permits an authorized
lender to charge a maximum interest rate equa l to “the standard conventional fixed-rate
mortgages published in the Wa ll Street Journal for the last business day of the second
preceding month plus four percen tage points.” Minn. Stat. § 47.20, subd. 4a(a). Neither
Johnson nor Deutsche Bank submitted evidence showing whether the higher interest rate
provided in Minn. Stat. § 47.20, subd. 4a(a), applies.
Johnson submitted a rate sheet listing the fi ve interest rates for conventional home
loans under Minn. Stat. § 47.20, which lists the relevant rate for March 2006 as 10.115%.
Johnson argues that even if Great Northern was authorized to charge the higher rate under
Minn. Stat. § 47.20, subd. 4a (a), the maximum interest rate allowed was 10.115%. The
district court, however, added the statutory four percent to the 10.115% rate, which would
have permitted authorized lenders to charge an interest rate of 14.115%. It is not clear
from the record whether this rate sheet already included the additional statutory four
percent because the rate sheet itself is uncle ar and neither party su bmitted a copy of the
Wall Street Journal. On a summary-judgmen t motion, the district court cannot make

11
findings of fact and must view the evidence in the light most favorable to Johnson. Hatch,
679 N.W.2d at 406.
Deutsche Bank produced no evidence that Minn. Stat. § 47.20, subd. 4a(a), in fact
applies or that the 13.125% interest rate is permissible under that statute or a different one.
Deutsche Bank can defend against Johnson’s usury defe nse by producing sufficient
evidence to show that a releva nt exception applies. But on this record, viewing the
evidence in the light most fa vorable to Johnson, we conc lude that Johnson submitted
sufficient evidence to establish a prima facie case for usury under both Minn. Stat. § 334.01
and Minn. Stat. § 47.20, subd. 4a(a), and that a ge nuine issue of material fact exists as to
whether the 13.125% interest rate is authorized, making summary judgment on that usury
defense inappropriate.
III. Deutsche Bank properly accelerated the note.
The note has an optional acceleration cl ause, which permits Deutsche Bank to
“require [Johnson] to pay immediately the full amount of principal which has not been paid
and all the interest that [she] owe[s] on that amount” if Johnson defaults. Johnson argues
that the district court erred in concluding that she had sufficient notice that Deutsche Bank
had exercised its rights under the acceleration clause. Absent acceleration, Johnson asserts
that the judgment would be lim ited to $31,783.94. The district court concluded that
Deutsche Bank gave Johnson sufficient notice of acceleration when it sued for the entire
obligation remaining under the note and served its summary-judgment motion seeking that
same amount.

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Few Minnesota cases have addressed when an obligor has sufficient notice that the
obligee has exercised its rights under an opti onal acceleration clause in a contract. See
Honn v. Nat’l Comput. Sys., 311 N.W.2d 1, 2 (Minn. 1981) (s tating, in dicta, that “where
the acceleration provision is optional,” the obl igee must “unequivoc ally exercise[] the
option”). Until the obligee exer cises its rights under the acce leration clause, the obligor
has the right to remedy the default by tendering payment of the amount due. KIXX, Inc. v.
Stallion Music, Inc., 610 P.2d 1385, 1388 (Utah 1980). The obligee “must perform some
clear, unequivocal affirmative act evidencing his intention to take advantage of the
accelerating provision.” Hassler v. Account Brokers of Larimer Cty., Inc., 274 P.3d 547,
553 (Colo. 2012) (quotation omitted); see also United States v. Feterl, 849 F.2d 354, 357
(8th Cir. 1988).
The note’s terms allow Deutsche Bank to accelerate the full amount “immediately”
upon Johnson’s default. In the notice-of-default letter, the complaint, and the summary-
judgment motion, Deutsche Bank requested th e full amount of principal and interest due
under the note. Johnson relies on several st atements made by Deutsche Bank throughout
the proceeding to show that Deutsche Bank did not accelerate the note. Deutsche Bank
stated in its notice-of-default letter that “[t]o date the Note has not been accelerated,” and
Deutsche Bank’s judgment manager stated in her affidavit in support of summary judgment
that “[t]he Note has neither matured nor prev iously been accelerated.” These statements
merely show that Deutsche Bank had not accelerated the note prior to the notice-of-default
letter and current litigation. But Deutsc he Bank provided John son with clear and
unequivocal notice that it was accelerating the note when it demanded the full remaining

13
principal and interest in the notice-of-default letter and the complaint. Hassler, 274 P.3d
at 553. The material facts are not disputed, and the district court properly applied the law.
Because Johnson failed to produce sufficien t evidence to establish a genuine issue
of material fact with respect to her fraud-in -the-factum defense, we affirm the district
court’s rejection of this defense. Because Deutsche Bank provided Johnson with clear and
unequivocal notice that it was exercising its ri ght to accelerate the note, we affirm the
district court’s conclusion that Deutsche Bank properly accelerated the note. But, because
Johnson presented sufficient evid ence to establish a genuine issue of material fact with
respect to her usury defense, we reverse and remand.
Affirmed in part, reversed in part, and remanded.